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Monsanto share price hit by "different view" of biotech

GUARDIAN (London)Tuesday
December 21, 1999

Monsanto pays GM price

Controversial foods division to be spun off as pharmaceuticals groups

Jane Martinson in New York

Monsanto, the US biotechnology company, bowed to consumer and shareholder
pressure yesterday and announced it would spin off its controversial
agricultural chemical business as part of a merger with Pharmacia &
Upjohn, the drugs company.

But such is the deep concern over the genetically modified foods business
that the intention to keep a controlling stake in the division saw shares
in both Monsanto and Pharmacia fall more than 10% following the

The all-share merger, which offered no premium to either group's latest
share price, underlines how a technology promoted by Monsanto as a
revolutionary way of revitalising the struggling agricultural industry had
become an albatross for the group. Tim Ghriskey, senior fund manager for
Dreyfus Corporation, said yesterday: "The shares are still tainted by the
agri-chemical side. Everybody was hoping it would not be part of the

As part of the merger, the new group plans to spin off up to 20% of the GM
business. Analysts believe the sell-off will value the GM division at not
much more than one year's sales, less than $4bn (#2.5bn), because of
continuing doubts about its future. Fred Hassan, chief executive of P&U,
sought to ease fears about the remaining 80% stake by saying that GM foods
were "based on very solid science".

However, he admitted that an "education" campaign was needed to overcome
the "PR problem" associated with the industry. Genetically modifying
products were "actually... good for the environment". Mr Hassan will
become chief executive of the combined group following the merger.

Robert Shapiro, Monsanto's chief executive, will become non-executive
chairman of the merged group for 18 months. In a presentation to analysts
yesterday, the two men sought to focus on the benefits to be realised. The
deal is expected to create the world's eleventh-largest drugs company with
a market value of more than $50bn and sales of about $17bn.

Mr Shapiro said: "The new company is being created from two rapidly
growing organisations with strong global capabilities. It is a merger
driven from strength, and will have the appropriate scale and resources to
capture the full value of its growth potential."

The new group, which has yet to be named, aims to cut costs by about $600m
a year as a result of the deal, largely by sharing research and
development costs of some $2bn a year and merging sales operations. The
companies have developed several well-known drugs and health care products
including Rogaine, the hair growth treatment, and Nicoret, the
anti-smoking product. Barbara Ryan, pharmaceuticals analyst at Deutsche
Bank, described the "underwhelming" deal as "a defensive move by both
companies to stay in the game".

The pharmaceuticals industry is in the throes of a merger frenzy as
companies rush to cut the heavy costs associated with new drugs. Monsanto
was close to merging with American Home Products last year, but the deal
was called off, reportedly because of managerial differences.

AHP is now fighting Pfizer for control of Warner-Lambert, another US
rival. One analyst pointed out that yesterday's deal valued Monsanto at
about $13 a share less than the value it could have achieved if the mooted
merger with AHP had gone ahead, before consumer concerns over GM food
gained momentum.

Mr Shapiro admitted yesterday that his company's share price had been hit
by "a different view about agricultural biotech" over the past 12 months.


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